How do you obtain the net value from a 20% gross value?

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Study for the AAT Level 2 Introduction to Bookkeeping Test. Use flashcards and multiple choice questions with hints and explanations. Prepare effectively for your exam!

Multiple Choice

How do you obtain the net value from a 20% gross value?

Explanation:
When you have a gross value that includes 20% VAT, the net value is the amount before VAT. The relationship is gross = net × 1.20, so to obtain the net from the gross you divide by 1.20. For example, if the gross amount is 120, the net is 120 ÷ 1.20 = 100. Multiplying by 1.2 would give the gross from the net, not the net from the gross, and dividing by 0.8 or 0.95 would reflect other VAT rates (25% or 5%), not 20%.

When you have a gross value that includes 20% VAT, the net value is the amount before VAT. The relationship is gross = net × 1.20, so to obtain the net from the gross you divide by 1.20. For example, if the gross amount is 120, the net is 120 ÷ 1.20 = 100. Multiplying by 1.2 would give the gross from the net, not the net from the gross, and dividing by 0.8 or 0.95 would reflect other VAT rates (25% or 5%), not 20%.

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